China Pauses IPOs as Regulators Move to Halt Equity Slide

China has paused initial public offerings and temporarily suspended large sales by existing shareholders, according to reports, in a coordinated attempt to arrest a sell-off that has deepened on investor scepticism over the AI trade.

The China Securities Regulatory Commission has held meetings with investment banks over the past few days about holding fire on IPOs, according to Financial Times reports cited by City AM. Block trades by existing shareholders have also been halted until markets recover.

The Wall Street Journal reported that Chinese regulators told the country's biggest securities firms and banks to throttle back their work on initial public offerings and focus on boosting the struggling stock market, according to people familiar with the matter. ZeroHedge characterised the moves as "more sign of coordinated efforts by authorities to stabilize equity market weakness."

Benchmark posts worst month in a decade

The intervention follows the worst performing month for mainland China's benchmark index in over a decade. The CSI 300 fell 8.5 per cent in October, taking its losses for the year to 15 per cent. The index lost a further 0.2 per cent in Tuesday's session.

Hong Kong's Hang Seng has tumbled 10.6 per cent since January, while the Shanghai Composite has lost 10.3 per cent.

Chinese equities have been caught in a prolonged downturn since the summer as investors' scepticism over the AI boom gained speed. The damage has been concentrated in the summer's marquee listings: Unitree Robotics, which soared on debut, has seen its share price plummet more than 26 per cent, AI firm MetaX has tumbled 31.4 per cent and transceiver supplier Eoptolink has fallen 43.1 per cent.

Other exchanges in the region have taken similar steps to manage volatility. South Korea's blue-chip index has triggered 55 trading halts this year to date, temporarily cutting off investor access during volatile periods, and the Tokyo Stock Exchange has also green-lit trading halts over the course of the year, City AM reported.

Analysts doubt the fix

Strategists questioned whether restricting supply would address the underlying driver of the decline.

"While the measures may help shore up sentiment in the short term, they don't tackle the deeper concerns about the economic outlook or whether the huge sums being poured into AI will generate the returns investors are banking on," said Susannah Streeter, chief investment strategist at Wealth Club. "Trying to calm nerves by artificially restricting the supply of shares may buy some time, but it's unlikely to persuade investors that the worst of the sell-off is over."

The pressure has spread across the region, which had initially recovered from last week's bruising sell-offs. South Korea's blue-chip index fell 3.5 per cent, giving back all of Monday's gains, with losses led by tech heavyweights Samsung Electronics and SK Hynix, down 4.1 per cent and 1.1 per cent respectively.

Wall Street rally reverses

In the US, Monday's rally was reversed after Apple's earnings, when the company warned investors that higher prices will eat into profit margins. The Nasdaq Composite closed 1.4 per cent lower and the S&P 500 fell 0.5 per cent.

"Pretty much anything tech-momentum-AI related remains under pressure with an abortive attempt at a rally yesterday on Wall Street, a signal that buyers are not rushing to buy the dip just yet," said Neil Wilson, investor strategist at Saxo.

Analysts are also awaiting the fallout of Tuesday's US midterms, with the performance of Democrats in particular anticipated to weigh on AI stocks.

"There's a bit of a 'have your cake and eat it' dilemma. We're seeing concern on both sides around the rapid build-out of data centres, including electricity costs, water use and pressure on local infrastructure," said Abbas Owainati, head of portfolio management and asset allocation at Raymond James. "But there is also support across the political divide for maintaining US leadership in AI, particularly given the strategic competition with China."